Most of the news about long-term-care insurance has been bad. Carriers dropping out! Premiums skyrocketing! Even a federal long-term-care plan got scuttled as unfeasible.

What’s been missing are the success stories, or at least the hopeful signs. And there are some, say people in the industry. “Based on our almost 40 years of [long-term-care insurance] experience, we have personally helped our clients receive millions of dollars in benefits,” says Brian I. Gordon, president of MAGA, a long-term-care specialist and broker in Riverwoods, Ill. “We can truly say that the carriers we’ve worked with have paid 100% of all legitimate claims filed.”

According to one study, long-term-care insurance carriers paid out a total of $6.6 billion in claims last year. Has the industry gotten an unfair bad rap? Is it turning around at last?

A Growing Need
As the population ages and the need for long-term care grows, the benefits of coverage can’t be denied. In a 2013 cost-of-care survey, Genworth Financial—the nation’s leading seller of LTC insurance—found that the median annual rate for a nursing home room jumped 24.3%, or $16,425, over the past five years, outstripping inflation by about 16%. And in most cases, regular health insurance and Medicare won’t foot the bill.

But even among those who agree that long-term-care insurance is the best way to protect clients from this risk, there’s the sense that it’s become prohibitively expensive. Drastic premium hikes have caused many clients to reduce coverage or drop it altogether.

Others, however, insist that’s only part of the story. Steve Sperka, a vice president at Northwestern Mutual, the No. 2 long-term-care insurance provider, headquartered in Milwaukee, thinks carriers have been unfairly stereotyped. “Some people mistakenly think that long-term-care insurance is too expensive, too risky and not worth it. Or they believe that buying an LTC policy and not using it means they have lost money,” he says. “But they wouldn’t say the same about insuring their car or their house.”

LTC Myths
It’s important not to tar all policies with the same brush, he says, or judge all carriers equally. “Not all firms entered the market in the way that Northwestern Mutual did,” Sperka says. It has “never raised rates for its in-force policy owners.” In fact, when its underwriting assumptions have proved unduly pessimistic, Northwestern Mutual has actually issued rebates to customers.

The point is to compare companies and plans. “A long-term-care product is a 30- to 40-year investment, so knowing that the company you’re purchasing from has the knowledge and expertise at managing risk, with a demonstrated history of financial strength, is essential,” says Sperka.

Equally essential is to understand the details of coverage. “There are a lot of insurance policies that are advertised as LTC when they only cover chronic care—i.e., permanent conditions—not full LTC needs,” says Doug Lockwood, branch president of Auburn, Ind.-based Hefty Wealth Partners. “Look for companies with a long track record, an incredibly strong financial rating and guaranteed policies.”

Also, he adds, look for policies with tax-free benefits; only those that adhere to certain IRS regulations qualify.

Too Expensive?
Another commonly misunderstood aspect of long-term-care coverage concerns the recent rate increases. The big jumps that make the headlines are on specific parts of old policies that were mispriced to begin with, experts say—riders such as 5% compounded annual coverage growth to offset inflation, or unending payouts—not on the policies themselves.

“Most people continue to pay the same premium by accepting a lower benefit growth rate and perhaps a limited duration policy of, say, five or six years,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, a trade group headquartered in Los Angeles. “There are options that make the product more attractive to consumers. Unfortunately, few professionals are knowledgeable [about] or offer these options.”

In fact, much LTC insurance has become more affordable than people think, say insurers, in part because there’s more actuarial data about who’s using the policies and how. “LTC insurance is an affordable product, and a majority of policyholders have had positive experiences claiming benefits,” says Douglas Hamm, vice president of sales for LifeSecure Insurance Co., a provider based in Brighton, Mich. “As time has evolved, carriers and their actuaries have learned a tremendous amount about [this insurance]. Underwriting and pricing assumptions have been adjusted, and we’ve gained a better understanding of how consumers use the product. This experience has allowed carriers to price the product more appropriately and accurately, as well as to create a more versatile and stable, consumer-friendly product, by eliminating certain riders and adjusting benefit features.”

The underreported good news, then, is that this protection isn’t exclusively a luxury item for the wealthiest of clients. In fact, says Hamm, “it’s easy to design [a long-term-care insurance] plan that fits a range of personal budgets and benefit levels to fit personal needs. Having some protection is better than having none—it doesn’t have to be an all-or-nothing decision.”

Addressing The Middle Market
The range of current options includes hybrid products that mix things like universal life with the long-term-care product. These options often come with “secondary benefits” such as premium returns and death payouts. “Many carriers have entered the combination/hybrid product market offering long-term-care riders and/or chronic illness acceleration riders,” says Steve Schoonveld, head of Linked Benefit Product Solutions at Hartford, Conn.-based Lincoln Financial Group, which offers universal life insurance with a long-term-care insurance rider, among other linked benefits. “In addition, flex pay options … are gaining traction, giving households a way to finance their policies over a period of up to 10 years. Many of these policies come guaranteed, meaning long-term-care charges or rates cannot increase.”

Another often-overlooked option for people with limited budgets is the state-sponsored partnership program. It’s not available everywhere, but it’s been expanding state by state since 2005. Launched in 1992 in a few test states, the program offers special eligibility for certain Medicaid services to those who purchase their own LTC insurance policies. The jury is still out on the effectiveness of this program, but Schoonveld says don’t give up on it yet. “Individuals who purchased partnership-qualified policies are just now entering the ages where lengthy claims are more frequent,” he says. The benefits “have yet to be realized.”

It May Get Worse Before It Gets Better
But others are not so sanguine. “Conventional LTC will continue to see carriers dropping out of the market and premiums rising,” says Lewis J. Walker, a certified financial planner at Life Transitions Advisors in Peachtree Corners, Ga., and the author of the book Planning for the Challenges of Aging, Healthcare, and Special Needs. But that doesn’t mean long-term-care coverage will vanish altogether, he says. Rather, it will adapt. “We will see an increase of linked LTC benefits … tied to single premium life insurance or other forms of life coverage, as well as annuity streams,” he says.

Some complain that long-term-care policies are slow to pay benefits, but that may be a case of a few bad apples. “We have seen some of the substandard carriers drag out the [claims] process,” says Gordon, at MAGA. Sometimes it’s just a technicality—a physician didn’t spell out a plan of care, say, or a nursing facility or home-care provider failed to complete forms correctly or fax them to the right department so that the benefits would be paid on behalf of the policyholder. “The other problem is people do not take the time to make sure the facility or home-care provider meets the policy provisions to qualify for benefits,” Gordon adds.

Yet in one form or another, long-term-care coverage will always be needed, because people without it run the risk of ruining their financial security if for some reason they need extended help with daily living tasks, says Sperka. “After age 65, Americans have more than a 70% chance of needing some form of long-term care,” he says.

A Highly Defined Market
And it’s incumbent upon advisors to discuss these options with clients. Long-term-care planning “doesn’t always consist of having insurance,” acknowledges Gordon. And Slome asserts that one of the most misunderstood aspects of the coverage is that it is “not a ‘universal’ product,” he says. “In reality, the market for this product is highly defined.”

That means the way to discuss long-term-care insurance is to frame it as part of a bigger picture. “Long-term care is a critical risk for advisors and their clients to address,” says Sperka, “and a financial security plan that doesn’t include a long-term-care management component is not complete.” But this insurance is “best considered as part of a client’s broader financial plan in retirement … not just a component to be considered in isolation, [so] individuals can choose the right level of coverage and the options that best suit their individual situation.”

Increasing Stability
Rising interest rates, despite their effect on other parts of the economy, would be a good thing for LTC. Insurance companies in this area typically invest in bonds, and when returns are low, they are forced to increase premiums to make up the difference. “Hopefully, interest rates will rise in the near-term future, and that will restore some level of modest profitability for insurers,” says Slome.

For advisors and brokers, though, the key to success is separating the truth from fiction.